Proposal to establish single business registration number for Canadian corporate taxpayers.

On May 25, 1993, Tax Executives Institute submitted the following comments to Revenue Canada - Customs, Excise and Taxation on a government proposal to establish a single business registration number for corporations. The submission was prepared under the aegis of the Institute's Vice President-region I, J. Lawrence Martin of Mobil Oil Canada, and its Canadian Income Tax Committee, whose chair is Vincent Alicandri of Xerox Canada Limited. Revenue Canada's response is reprinted elsewhere in this issue.

On behalf of Tax Executives Institute, I am pleased to submit the following comments on the proposal to establish a single business registration number (SBRN) for corporations.

Background

Tax Executives Institute is an international organization of approximately 4,800 professionals who are responsible - in an executive, administrative, or managerial capacity - for the tax affairs of the corporations and other businesses by which they are employed. TEI's members represent more than 2,400 of the leading corporations in Canada and the United States.

Canadians make up approximately 10 percent of TEI's membership, with our Canadian members belonging to chapters in Calgary, Montreal, Toronto, and Vancouver which together make up one of our nine geographic regions. In addition, a substantial number of our U.S. members work for companies with significant Canadian operations. In sum, TEI's membership includes representatives from most major industries, including manufacturing, distributing, wholesaling, and retailing; real estate; transportation; financial; and resource (including timber and integrated oil companies). The comments set forth in this submission reflect the views of the Institute as a whole but more particularly those of our Canadian constituency.

Participation By Large

Corporations

TEI understands that the SBRN will initially be offered to new businesses and that, after initial testing of the system at eight sites in 1993-1994, the system will be implemented nationally. Hence, existing businesses will be asked whether they want to switch to the SBRN system. We commend Revenue Canada for taking this elective approach and affording taxpayers the option of participating in

the SBRN rather than mandating their participation in the new program.

TEI recommends that large corporations be included in the testing process. We also recommend that the government establish a joint Taxpayer/ Government Task Force to address the myriad of issues arising from the transition to a SBRN system. In this regard, TEI would be pleased to provide names of taxpayers willing to participate in this consultative process. In the ensuing sections of this letter, we outline the major issues that we have identified to date.

Multiple Sub-Accounts

Frequently, large corporations assign the responsibility for the administration and remittances of the various taxes to different individuals. For example, in the case of payroll source deductions, large corporations likely remit on a by-location basis and, accordingly, they have established a separate account number for each location.

To the extent the SBRN program represents the taxpayer's prime account and the various tax programs are administered by way of sub-account numbers, internal administration of corporate and payroll taxes, GST, nonresident withholding taxes, etc., for larger, decentralized companies should be unaffected. We note, however, that

the various taxes currently have different due dates for installments, interest, penalties, etc., and the multiplicity of rules win greatly complicate administration of the SBRN system. Indeed, TEI has serious concerns whether a single payment/refund procedure could work for large, decentralized corporations. We believe such corporations should retain the ability to make separate payment/payments for each type of tax, and refunds due under one tax program should not be delayed by disputes or payments due under another program. We also recommend that sufficient flexibility be incorporated into this system to enable decentralized corporations to continue their separate remittances by location. This may be accomplished, for example, by having more than one sub-account for payroll source deduction remittances.

Netting Within the

Primary Account

Based on the experience of our members with the administration of the Quebec Income Tax Act, TEI is less than sanguine about the potential netting of federal tax accounts within the SBRN.(1) If excess payments within one sub-account were to be automatically applied against amounts owing in other sub-accounts, large corporations would find it extraordinarily difficult to administer their payments. Although the netting of sub-accounts might produce some cash flow benefit (to either the government or the taxpayer), the administrative work within a large corporation to coordinate this activity would be tremendous and would largely offset any potential cash flow savings. Consequently, we recommend that netting between sub-accounts should not be automatic. Rather, transfers between the sub-accounts should be effected only at the request of the taxpayer. For example, a GST refund amount should not be applied to a source deduction payment unless the taxpayer elects such a transfer in writing.

TEI recognizes that there may be situations where the Minister must retain the unilateral right to offset account balances. We suggest, however, that this right should be sparingly exercised, and recommend that such offsets be restricted to situations where reasonable grounds exist to believe that the collection of tax owing is in jeopardy.

Account Officers

TEI believes that the efficacy of the SBRN program would be enhanced if Revenue Canada assigns an account officer for each SBRN, at least in respect of large corporations. The account officer would serve as Revenue Canada's da's liaison with the taxpayer and have the responsibility for answering questions, facilitating transfers between sub-accounts, etc. We believe the account officer should also be designated as the Revenue Canada representative responsible for contacting the taxpayer on behalf of the department with respect to the SBRN account and sub-accounts. Under our proposal, the name and phone number of the account officer would be listed on the taxpayer's statement of account.

Summary

Tax Executives Institute is supportive of a SBRN program having the following characteristics:

* Establishment of sub-accounts for the various tax programs to which the taxpayer could make multiple remittances.

* Procedures for transfers between the sub-accounts only upon written authorization of the taxpayer.

* Payment of refunds under a tax program without delay attributable to disputes or amounts owing under other programs.

* Appointment of an account officer for each SBRN.

In addition, as stated at the outset, TEI believes large corporations should be included in the initial testing process, and a joint Taxpayer/Government Task Force should be established to address problems arising during the transition/implementation stage.

Tax Executives Institute appreciates the opportunity to provide our comments on the proposed SBRN program. If there are any questions about the Institute's position, please do not hesitate to call either J. Lawrence Martin, TEI's Vice President for Canadian Affairs, at [phone] or Vincent Alicandri, chair of our Canadian Income Tax Committee, at [phone].

(1) Our U.S. members regrettably have much experience with offsets gone awry under the Internal Revenue Service's offset program. In TEI's experience, the offsetting across types of tax and even particular taxpayers (i.e., a debit in one account of a company being used to reduce a credit in an account of an affiliated company) has produced much confusion. Although the IRS (which has suspended the offset program a number of times) continues to press for a broad-based program, efforts are underway to develop either an exemption for large corporations or a mechanism whereby taxpayers would be notified before any offset is made.